Palm oil industry fumes as Indonesia gets tough on forest fires

Image: A firefighter from the local disaster management agency tries to extinguish a peatland fire in a palm oil plantation in Pelalawan, Riau province on the Indonesian island of Sumatra September 26, 2015 in this photo taken by Antara Foto. FB Anggoro/Antara Foto/File Photo via REUTERS

By Bernadette Christina Munthe and Fergus Jensen

JAKARTA (Reuters) – Palm oil firms have slammed Indonesia’s move to prohibit the use of new land to boost production, saying President Joko Widodo’s latest effort to tackle forest fires could slash jobs and cripple output in the world’s top producer of the commodity.

Palm oil is a major growth driver for Indonesia, but the industry is facing criticism for deforestation and its slash-and-burn forest-clearing techniques that’send vast plumes of smoke across Southeast Asia every year, described by climate officials as a “crime against humanity”.

Widodo has pledged to tackle these fires and last week said palm oil firms must raise yields of existing plantations instead of clearing forests to increase acreage and output. The land already given to growers could be more than twice as productive “provided they use the right seeds”, he said.

While green groups welcomed the moratorium, palm firms have questioned its effectiveness and cautioned it could hurt Indonesia’s top-producer position.

“The president’s suggestion of doubling Indonesian palm growers’ productivity is easier said than done,” said Togar Sitanggang, corporate affairs manager at Musim Mas, one of Indonesia’s biggest palm oil producers.

“The problem with productivity has been there for years,” he said, adding it was also unclear who would pay for the right seeds. “There is no budget for this.”

Big players, such as PT Sinar Mas Agro Resources, Astra Agro Lestari, Wilmar International, may be able to raise output on their current holdings, but it will be tough for smallholders to do so, industry sources said.

That could lead to layoffs as the harder-hit’smallholders, which account for 40 percent of Indonesia’s output, are forced to sell land to bigger firms looking to expand, they said.

“Our reputation as the biggest palm oil producer will be history,” said Eddy Martono, an official at the Indonesian Palm Oil Association.

The country churned out 32.5 million tonnes of the edible oil in 2015, two-thirds more than No.2 producer Malaysia. Indonesia’s overseas palm oil sales raked in $19 billion over the period, or 13 percent of its overall exports.

Indonesia’s palm oil industry and plantations are big enough already and “all that’s left is how to increase production and (improve) efficiency in terms of land used for oil palm,” presidential spokesman Johan Budi said.

A regulation on the moratorium is expected “this year, (but) when exactly I don’t know”, he told Reuters via a text message.



The moratorium is seen as a step in the right direction for Indonesia’s reputation among consumers seeking sustainable farming practices. Palm oil is used extensively in food, cosmetics and biofuels.

Earlier this year, consumer goods giant Unilever dropped its deal with Malaysian palm firm IOI Group due to deforestation in the latter’s plantations in Indonesia.

Widodo, however, has stepped up the fight to strengthen environmental protection and has earned praise for steps taken after last year’s forest fires, which were particularly bad due to a dryness linked to an El Nino weather event and which pushed the country’s average daily greenhouse gas emissions above those of the United States.

Several palm oil companies have faced penalties for letting their concessions burn and the government has set up a new anti-fire agency to irrigate dry peatlands, where nearly half the blazes occurred last year. Widodo also cut short a trip to the United States in 2015 to deal with the fires.

But huge challenges remain for Widodo, including corruption in granting concessions and coordinating policy within a decentralized government.

Palm oil areas rose 9 percent from 2013 to around 11.44 million hectares (28 million acres) last year, despite an existing moratorium on clearing primary forest and peatland.

“We have learned from weak enforcement of the moratorium on clearing primary forests and peatland that (such a ban) lacks teeth … and must take the form of a binding presidential regulation,” said Kiki Taufik of Greenpeace Indonesia. Taufik said other government ministries need to be included in the drafting of the latest moratorium for it to be effective.

“We need to push the government to release a real regulation- not just a commitment.”


(Editing by Randy Fabi and Himani Sarkar)

Copyright 2015 Thomson Reuters. Click for Restrictions.

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